Gale Pacific Limited (ASX: GAP) is currently paying a dividend yield of more than 10%, partly franked, and trading on a P/E ratio of less than 10, so why is the market missing the company?
For a start, with a market cap of just $74.4 million, Gale Pacific is too small for most fund managers. Shares are fairly illiquid too, with an average of around $30,000 worth of shares trading each day, over the past 3 months.
And then you also need to consider that the 2014 financial year's reported net profit of $8.2 million was lower than the previous year by 9%, despite revenues rising 14% to $137.3 million.
Doesn't look too tempting then does it? Well, a number of things are likely to see revenues and profit higher next financial year, which could see earnings per share and dividends increase.
Gale manufactures and sells screening and shading products, most notably its Coolaroo brand of umbrellas and shade cloth, which is sold through retailers like Bunnings and Masters, owned respectively by Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW).
In fact, 58% of the group's sales comes from Australia, but David Allman, the company's chairman described this year's Australian result as 'unacceptable'. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 73% to $1.7 million, driven in part by higher input costs, a problematic IT system implementation and poor service levels.
Offsetting the poor Australian performance were strong growth in overseas markets. US sales jumped 27%, while Middle East sales rose 14% and China sales were up 9%. Gale Pacific says it expects strong growth in its offshore markets should continue.
A restructure, which will result in a $2.5 million one off cost in the 2015 financial year, and continued transformation of the Australian business should see the domestic business report a better result this financial year.
Gale Pacific has also recently diversified into window furnishings as well as pool fencing products, kitchen splashbacks, shower screens and balustrades, which should gain traction this year.
With a cheap price, whopping dividend and the potential for a much better result in 2015, Gale Pacific is one stock you might want to add to your watchlist.
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